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Deutsche Telekom, France Telecom to merge British wireless operations

With hopes of boosting their position in the United Kingdom’s (U.K.’s) fiercely competitive mobile phone service market, Deutsche Telekom (DT) and France Telecom (FT) agreed tentatively on Tuesday to combine their British wireless operations into a 50-50 joint venture that would leapfrog rival O2 as the largest wireless carrier in the U.K. Respectively, FT and DT own Orange and T-Mobile U.K., which currently rank as the third- and fourth-largest wireless operators in Great Britain. In recent years, both carriers have struggled competitively in an increasingly saturated U.K. wireless market that, in addition to market leaders O2 and Vodafone, features a significant number of wireless resellers. While acknowledging that the proposed transaction may give T-Mobile and Orange the scale needed to compete effectively in such an environment, observers also say that the deal could trigger new merger activity among other mobile phone carriers that have jockeyed for elusive market share in Europe’s saturated wireless sector. Under the preliminary pact, which is expected to be finalized next month, the merged entity would be led by CEO Tom Alexander (currently the CEO of Orange U.K.) and by current T-Mobile U.K. CEO Richard Moat as chief operating officer. The merged entity’s board would be comprised equally of representatives from T-Mobile and Orange. Together, the partners plan to spend US $1.3 billion to streamline the group’s operations through 2014. Sources also anticipate that the combined entity will generate $5.7 billion in cost savings. Upon receipt of shareholder and regulatory approvals, the post-merger entity would command more than 30 million customers with a 38% share of the U.K. wireless market. As FT CFO Gervais Pellissier explained “we needed the scale to run a very efficient business,” DT CFO Timotheus Hottges asserted that the deal “will give us a stronger foothold in the U.K. market than we had before.”